00:11:39 · Chris Power, Ty Morse
[00:11:39] S1: It's straight at eighty percent. Crazy. And it's not because we're risky. It's because the fundamental construct is that if you want to continue having venture returns and a relatively decent cost of capital, which is required for the reindustrialized mission, Therefore, you're always growing your risk balance sheet, let's call it CapEx or r and d, by double the same amount. And the only reason the risk retires is if you slow your growth to 20% because then your cash flows catch up to your CapEx bets. Now you can get extremely good at forecasting, tracking. Like, we're not yellowing a billion dollars of CapEx. It's very intentional. But if you if you deploy 2,000,000,000 in CapEx now, today, that gives you the opportunity to grow to 5,000,000,000 in revenue in 2028. Now if you don't grow to 5,000,000,000 in revenue in 2028, you don't have any venture returns. If we also don't grow 5,000,000,000 revenue by 2028, the CapEx bill is such that, you know, you're turbo fucked. So the only option is to do both at once. So until such time as you're growing 20% year over year, then the risk doesn't retire. [00:13:10] S0: There's this amazing line that Jeff Bezos once talked about where there's this idea of two way doors and one way doors, and two way doors, you can go in and make a decision and then walk that decision back if it doesn't work. One way doors, you basically go and if the thing doesn't work, you've committed. Yep. But Isaiah from Valor has this other idea where he's like, in order to move fast, I've had to sprint through some one way doors.
00:13:10 · Ty Morse, Chris Power
[00:13:10] S0: There's this amazing line that Jeff Bezos once talked about where there's this idea of two way doors and one way doors, and two way doors, you can go in and make a decision and then walk that decision back if it doesn't work. One way doors, you basically go and if the thing doesn't work, you've committed. Yep. But Isaiah from Valor has this other idea where he's like, in order to move fast, I've had to sprint through some one way doors. [00:13:33] S1: Yes. [00:13:34] S0: How do you think about sprinting through one way doors in order to maintain a high pace?
00:13:38 · Chris Power
[00:13:38] S1: I think about it in two modes. One is... And it's mostly about time. And so I'll give you a practical example. And we try to teach the same all the time. So let let's say you're building a automated welding line, and you have to deliver a working prototype in month 10, but your CapEx lead times are nine months. And to be a 100% accurate around what robot is it, what's the station look like, is it the right weld, it's gonna take you three months. Best team in the world, it's gonna take you three months. Okay. That doesn't work because then you're in month 13. So how do you hit the timeline while minimizing the risk hedges of of what you can't control, which is time? The answer is if you break down that automated welding station, maybe it's a million dollars. Maybe $800 is single skew things like the particular machine, and the rest of it is a robot arm, a couple other things. If you're running a big platform like Hadrian, what you can do is say, hey, guys. You need to spend three weeks out of four weeks being a 100% sure that this big block of CapEx is 100% because that... You can't change that. But let's hash in a rough idea of what robot arms are gonna fit. And if you're wrong, it's gonna cost us $50 because we have to reuse the robot arm for something else. But if you miss the timeline, the company's dead because the customer cancels the contract. So you gotta think about it as CapEx CapEx and long engineering projects are all one way doors, and you're better off spending 30% more to bake in hedges. Because the one thing you can do is... Shit. We ordered all the CapEx, and we got some of the engineering predictions wrong, so it cost us three weeks because we screwed up an API integration or... Okay. That happens all the time. But then you're three weeks late. What you can't do is order nine months worth of CapEx. It arrives, and on nine months and day one, you realize you're wrong, and then you're at eighteen months risk. So you have to balance execution timelines against bets. But if you're dealing with... The the thing about software or sales or whatever is it's bad to miss a month. It's bad to miss a quarter. But you can recover from it because you can observe the problem and then pivot. And your correction time is maybe maybe maybe maybe you burnt 10,000,000 in runway, but you can you can pivot. CapEx is a whole different ballgame.
00:16:31 · Chris Power, Ty Morse
And if you don't have a 100% certainty that the CapEx you're buying is correct, then you have to hedge. And then you have to financialize that hedge across different trade spaces. So that's that's the way we think about it. The second most important way is... One of my favorite lines of all time is sometimes you just gotta roll a hard six. [00:16:56] S0: What does that mean?
00:16:57 · Chris Power
[00:16:57] S1: It means that sometimes, actually most of the time, you just gotta be right. And in businesses where you're dealing with long correction timelines, you just have to be really fucking good. And one of my... This is one of my favorite TV shows of all time is Battlestar Galactica. And you're fighting an asymmetric war and you don't know what's going on, and everyone's like, well, you know, we gotta we gotta go raid this fuel depot and all. And the opposing force is 10 times bigger. And, you know, you're gonna risk a lot of fighter jets going getting this, you know, fuel for Battlestar. And everyone's like, well, we're gonna... You know, it's it's very risky. It's super asymmetric. It's never gonna work. But the option space is basically, you don't do it. You don't win and you run out of fuel, or you just win and you gotta roll a hard six. And you gotta... You know, like in in in in dungeons and dragons, it's a natural 20. So mostly, the right attitude is there's no way to manage this. You just gotta roll a bunch of hard sixes. And if you... Once you understand that that is the business, that's fine. But there are no one way or two day doors. There are there are only one way doors. And then you gotta get very good at doing that and understanding the difference between something that you can fix later and something that you're not gonna be able to fix later. I'll give you a great example. So usually when you're constructing your factory, you wanna have a very good design and layout. And the layout determines your construction costs because some parts of the layout you need very expensive foundations and electrical clean rooms, etcetera. If you're moving fast, you're not gonna have the perfect layout. You wanna really think it through because whatever the layout... Like once you land the CapEx, it's stuck. And a lot of factory layout determines your operating efficiency in weird ways. Travel time, sure, but like where people communicate and stuff like that. What the way... One of the ways we think about it is, okay, the... One of the longest poles in factory bring up is literally where the electrical drops and where the foundations are. Now if you wanna aim for perfection, maybe you don't have to lay 20 inches concrete vibration isolated foundations everywhere.
00:19:34 · Chris Power, Ty Morse
But if you wanna kick off construction tomorrow, you're better off spending $25,000,000 on foundations instead of $15,000,000 so that you're buying your layout team four months worth of simulation time, and they can put the CapEx wherever they want. And that is a calculation of terminal efficiency value of that factory. So we overinvest in things like we're gonna do electrical drops everywhere, And the reason why we do that is you can pay an electrical contractor to do electrical drops everywhere, and you're not gonna use 30% of them. That's kinda counterintuitive, but one, they can just do mass electrical drops in two weeks, bang them everywhere. And then, you know, a manufacturing engineer can connect an electrical drop to a machine. So you wanna arbitrage the very expensive lock in things while not waiting for long lead decisions like foundation build outs or CapEx selection. And you have to think about the calculation of risk in a in a kind of different way. [00:20:42] S0: There's this idea in warfare of like asymmetry where if you have like, take China, for example, where they have, like, 232 to one shipbuilding capacity to The United States. If you tried to just front, you know, gun it and build a bunch of shipbuilding capacity in The United States, you couldn't beat them. But if you can figure out, like, to how take out their shipbuilding capacity and stuff, you can kinda, like, even the playing field. Yeah. Left to veteran. Is there such a thing in manufacturing as, like, asymmetric manufacturing? No.